INTERNATIONAL PAPER CO /NEW/ (IP)

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in "Financial Statements and Supplementary Data" of this Quarterly Report on Form 10-Q (this "Form 10-Q") and the Company's Annual Report on Form 10-K for the year ended December 31, 2025 (our "Annual Report"). In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and in our Annual Report and subsequent quarterly reports, particularly under "Risk Factors" and "Forward-Looking Statements" of this Form 10-Q. Please see our "Cautionary Statement Regarding Forward-Looking Statements" below.

EXECUTIVE SUMMARY

Second Quarter 2026 Financial Summary

•Net sales of $6 billion

•Loss from continuing operations of $12 million

•Adjusted EBITDA (non-GAAP) from continuing operations of $587 million (1)

•Cash provided by operating activities of $1.14 billion (2)

•Free cash flow (non-GAAP) of $87 million (1) (2)

(1) See "Non-GAAP Financial Measures" for a list of our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures.

(2) Reflects amounts for the six months ended June 30, 2026, rather than the second quarter.

Overview

The Company’s second quarter results reflect continued progress against the strategic priorities of improving execution, enhancing reliability, optimizing the cost structure, and investing in our most competitive assets. Operational performance improved across the enterprise despite a significant planned maintenance outage schedule in North America and a challenging demand environment in portions of Europe.

In North America, adjusted EBITDA was sequentially lower, but better than expected as the Company continued to benefit from commercial initiatives focused on customer engagement and market share growth. Sales volumes were higher, reflecting continued strength in our domestic business, seasonal demand patterns, and the favorable impact of one additional shipping day. Our box shipments increased approximately 1.7% on a daily basis compared with the prior year period, reflecting continued success in winning and retaining customer business. Margins improved due to faster realization of previously announced pricing actions and a more favorable product mix associated with lower export sales. Operating costs were slightly improved due to stronger mill performance, additional Ixtac insurance recoveries and the non-repeat of winter storm impacts in the first quarter. These benefits were mostly offset by costs of the Riverdale paper machine conversion and other planned reliability spending. Our mill system continued to improve with capacity utilization up approximately 5% versus 2025, reflecting the benefits of reliability initiatives, operational discipline, and ongoing investments. Planned maintenance outage spending was exceptionally heavy during the second quarter as expected, reflecting the year's peak outage spending period. Input costs were favorably impacted by the non-repeat of higher natural gas and utility costs resulting from the winter storm in the first quarter, partially offset by higher recovered fiber and freight costs.

In EMEA, adjusted EBITDA was sequentially lower, but better than expected, despite a challenging macroeconomic environment. Sales volumes declined modestly, reflecting continued softness in market demand amid ongoing geopolitical uncertainty and subdued consumer sentiment. Margins were lower as higher paper prices compressed packaging margins. Higher oil prices remained a headwind to distribution costs; however, accelerated cost-out actions helped offset a portion of the impact. Energy costs were lower while old corrugated container (“OCC”) costs remained elevated over the first quarter.

Looking ahead, we expect adjusted EBITDA to be sequentially higher in the third quarter across both regions. In North America, significantly lower planned maintenance outage spending and improved margins driven by continued realization of previously announced pricing actions are expected to offset lower export sales volumes, higher input costs and the impact of the temporary suspension of operations at our Pine Hill, Alabama mill. In EMEA, improved margins driven by higher paper and box prices, higher seasonal volumes, and ongoing cost reduction initiatives are expected to offset higher energy costs.

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Recent Strategic Portfolio Actions

International Paper executed several important strategic milestones during the second quarter of 2026.

PS NA

On June 4, 2026, we completed the acquisition of North Pacific Paper Company (“NORPAC”), a portfolio company of One Rock Capital Partners, for $368 million, subject to post-closing adjustments. Located in Longview, Washington, NORPAC enhances International Paper's ability to serve growing demand for lightweight, high-performance packaging grades, improves service levels for customers on the West Coast, and strengthens our overall system position. Shortly before closing, a tragic industrial accident occurred at the adjacent Nippon Dynawave Packaging facility resulting in multiple fatalities and injuries. The mill’s production was temporarily slowed during the investigation as the mill is partially reliant on the Nippon facility for certain utilities. We responded quickly to address the reduced steam supply from their facility and mill operations have returned to pre-incident levels.

We also completed the conversion of the No. 16 paper machine at our Riverdale Mill in Selma, Alabama, from producing uncoated freesheet paper to manufacturing containerboard. This $250 million investment is an important step in optimizing our manufacturing footprint, improving mill reliability and better servicing customers. We expect the machine to continue ramping up production throughout the remainder of the year and reach full operating capacity by first quarter 2027.

PS EMEA

The Company continues to execute strategic capital projects designed to enhance the efficiency, competitiveness, and long-term growth profile of our packaging operations.

At our mill in Lucca, Italy, we are modernizing the recycled containerboard platform through the replacement of an existing paper machine with a new lightweight machine. The investment is expected to improve fiber yield, reduce energy consumption, and enhance the mill's sustainability performance while increasing overall operating efficiency. The project is expected to strengthen our ability to serve our integrated converting network and remains on track for startup during the third quarter.

In Germany, we are advancing our cost optimization strategy by consolidating production volumes from smaller facilities into a more modern and efficient plant. This initiative is consistent with our lighthouse operating model in North America and is expected to maintain overall production capacity while improving asset utilization, reducing fixed costs, and enhancing our competitive cost position.

In Romania, we are expanding capacity within an existing operation to support customer demand and capture growth opportunities in Eastern Europe. The region continues to represent one of the fastest-growing markets within our portfolio, and the investment is expected to enhance our ability to serve customers while supporting long-term volume growth.

These strategic portfolio actions reflect the Company's ongoing efforts to strengthen its packaging network, better serve strategic customers, enhance efficiency, and support long-term value creation.

Macroeconomic and Market Conditions

We continue to operate in a dynamic macroeconomic and geopolitical environment. While industry demand in North America appeared stable, demand in EMEA remained subdued reflecting cautious consumer sentiment amid ongoing economic uncertainty. Continuing tensions and instability in the Middle East contributed to volatility in oil prices, resulting in higher diesel costs. As a result, the Company incurred higher costs to transport products to customers and procure certain key manufacturing inputs, such as OCC, in both regions. In response, we remain focused on disciplined logistics management by increasing trailer fill rates, consolidating shipments and optimizing our supply chain planning.

Strategies such as this are designed to help manage exposure to cost-related conditions. Persistent fluctuations driven by geopolitical conflict, evolving trade policies, and persistent economic pressures may have a material adverse effect on our consolidated results of operations, cash flows, or financial condition.

Update on Strategic Separation of EMEA Packaging Business

Management continues to make steady progress on its plans to separate the North America and EMEA packaging operations into two independent, publicly traded companies. Under the plan for separation, International Paper will be comprised of its current business in North America including both legacy IP and DS Smith assets, and the EMEA packaging business comprised

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of both legacy DS Smith and IP assets. The Company expects that creating two regionally focused businesses will allow each to tailor strategies to their distinct markets, enhance management focus, and support long-term value creation.

During the second quarter, the Company advanced the strategic separation workstream with readiness activities. The separation is expected to be structured as a spinoff, with International Paper retaining a meaningful ownership stake of approximately 20 percent. The EMEA packaging business is expected to be listed on both the London Stock Exchange and the New York Stock Exchange.

The transaction is expected to be completed within 12 to 15 months from the announcement date, subject to customary approvals, including final approval by IP’s Board of Directors, filing and effectiveness of a registration statement with the U.S. SEC and publication of a prospectus approved by the U.K. Financial Conduct Authority.

Business Update

At the end of June 2026, the Company temporarily suspended operations at its Pine Hill, Alabama mill to complete repairs following roof damage caused by a weather event. The Company is taking actions to mitigate any potential impact of this event on customers and expects to resume manufacturing operations in August 2026.

NON-GAAP FINANCIAL MEASURES

The non-GAAP financial measures presented in this Form 10-Q as referenced below have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of our results calculated in accordance with GAAP. In addition, because not all companies utilize identical calculations, the Company's presentation of non-GAAP financial measures in this Form 10-Q may not be comparable to similarly titled measures disclosed by other companies, including companies in the same industry as the Company. Users are cautioned not to place undue reliance on any non-GAAP financial measures presented in this Form 10-Q.

Below are the Company’s key non‑GAAP financial measures and their definitions:

Adjusted operating earnings (loss) and adjusted operating earnings (loss) per share are defined as earnings (loss) from continuing operations (a GAAP measure) excluding net special items and non-operating pension expense (income). Earnings (loss) from continuing operations and diluted earnings (loss) from continuing operations per share are the most directly comparabl

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CURRENT BUSINESS OVERVIEW

In the United States, as of the date of this filing, the Company operated 15 packaging mills, 159 converting and

packaging plants and 15 recycling plants. Additionally, production facilities in Europe, North Africa and Latin America

included 14 containerboard mills, 159 converting and packaging plants and 20 recycling plants. Substantially all our

businesses have experienced, and are likely to continue to experience, cycles relating to industry capacity and

general economic conditions.

VALUES

We are guided by our Company values:

•Safety – Above all else, we care about people. We look out for each other to ensure everyone is physically

and emotionally safe.

•Ethics – We act honestly and operate with integrity and respect. We promote a culture of transparency and

accountability.

•Excellence – We set high expectations and deliver outstanding results for each other, our customers and

our shareholders.

SEGMENTS

We operate under two divisions, which form the basis for the two segments we report, Packaging Solutions North

America and Packaging Solutions EMEA. A description of these business segments can be found in Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

AVAILABLE INFORMATION

Throughout this Annual Report on Form 10-K, we “incorporate by reference” certain information in parts of other

documents filed with the U.S. Securities and Exchange Commission ("SEC"). The SEC permits us to disclose

important information by referring you to those documents. Our annual reports on Form 10-K, quarterly reports on

Form 10-Q, current reports on Form 8-K and proxy statements, along with all other reports and any amendments

thereto filed with or furnished to the SEC, are publicly available free of charge on the Investors section of our

website at www.internationalpaper.com as soon as reasonably practicable after we electronically file such material

with, or furnish it to, the SEC. We encourage you to refer to such information.

You can learn more about us by visiting our website at www.internationalpaper.com, which includes information

about the Company, our SEC filings, financial and other information for investors. Information on our website could

be deemed to be material information. We encourage investors, the media, and other interested parties to visit this

website regularly for updates. The information contained on or connected to our website is not incorporated by

reference into this Annual Report on Form 10-K and should not be considered part of this or any other report that we

file with or furnish to the SEC. Our internet address is included as an inactive textual reference only.

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HUMAN CAPITAL

EMPLOYEES

As of December 31, 2025, we have approximately 62,602 employees, nearly 30,421 of whom are in the United

States. Of our U.S. employees, 20,705 are hourly, with unions representing approximately 11,498 employees. Of

this number, 8,622 are represented by the United Steelworkers union ("USW").

International Paper, the USW, and several other unions have entered into five master agreements covering various

U.S. mills and converting facilities. Four of the master agreements are with the USW and include members from the

International Association of Machinists and Aerospace Workers, International Brotherhood of Electrical Workers,

United Food and Commercial Workers International Union and Workers Unite at certain U.S. mills and converting

facilities. The Company also has a master agreement with District Counsel 2, which is affiliated with the Printing

Packaging & Production Workers Union of North America that covers additional converting facilities. Individual

facilities continue to have local agreements for subjects not covered by the master agreements. If local facility

agreements are not successfully negotiated at the time of expiration, under the terms of the master agreements, the

local agreements will automatically renew with the same terms in effect.

In addition to our U.S. labor agreements, we operate manufacturing facilities across EMEA, where labor relations

are governed by local laws, works councils, national unions, and country specific collective bargaining frameworks.

Labor practices, employment protections, and negotiation processes in these regions can differ significantly from

those in the U.S. and may impose additional requirements related to consultation, employee representation, and

changes in operations. The Company works collaboratively with these local bodies and employee representatives,

but labor related regulations, negotiations, or disruptions in any of these jurisdictions could impact operations, costs,

or workforce flexibility.

SAFETY AND WELLBEING

At International Paper, we value safety above all else. The safety and well-being of our employees, visitors and

business partners is fundamental to how we operate. In 2025, we reinforced our commitment to safety performance

and further implemented our Safety Excellence strategy, which is designed to strengthen our safety culture across

all operations.

Our Board of Directors has oversight of our safety strategy, and in 2025 began receiving updates on our Safety

Excellence efforts at every Board meeting, elevating safety as a standing governance priority and reinforcing

accountability at the highest levels of the Company. In addition, in 2026 the Board participated in an intensive, in-

person safety training led by our third-party safety consultant alongside senior management, further strengthening

alignment on our Safety Excellence objectives and modeling the leadership behaviors we expect throughout the

organization.

Through our Safety Excellence efforts, we are building a culture guided by five key attributes:

1.          We speak up and take action – every time, without fear.

2.          We show up where the work happens and listen with intent.

3.          We lead with humility and curiosity.

4.          We proactively eliminate risk and invest in what matters.

5.          We create a culture of care, trust, and accountability.

To ensure lasting impact, in 2025 we continued engagement of a leading safety consultant and initiated

comprehensive, top-down training and cascading through every level of leadership. Members of our executive

teams actively participated in safety leadership training, personal coaching and in-field demonstrations, reinforcing

accountability and modeling the behaviors we expect across the organization. These efforts are part of a broader

plan to embed safety into every aspect of our operations, with additional initiatives scheduled for 2026 and 2027 to

further advance our culture of safety excellence and engage every team member across IP.

We believe that safety performance and operational performance are inextricably linked. Plants and mills that

operate safely are less likely to experience unplanned process interruptions and downtime. The culture we are

building to improve safety performance also improves asset reliability, enhances production stability and supports

more consistent cost performance. Accordingly, the key drivers of strong safety performance contribute directly to

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operational excellence and, in turn, to our financial results. Our focus on Safety Excellence is therefore both a

cultural imperative and a key operational priority.

Our goal is to achieve zero serious injuries and fatalities at all sites and see that everyone goes home safely at the

end of each workday. This commitment means empowering every team member to stop unsafe work without

hesitation. To advance this goal, the following endeavors were undertaken in 2025:

•Trained 163 top leaders in 84 sessions that included classroom modules and coaching;

•Began training 3,400 site level leaders through classroom modules and in-field coaching;

•Established a Safety Governance Team in North America made up of executive leaders responsible for all

North American operations;

•Elevated safety updates as a standing agenda item at every meeting of the Board of Directors;

•Executed targeted investments to sustainably reduce exposure to harm in our facilities; and

•Celebrated team members who modeled our safety culture through personal recognition by our CEO and

sharing stories across the enterprise, reinforcing a culture where safety leadership is valued and visible.

We also believe workplace safety encompasses holistic well-being. We are committed to supporting the mental,

emotional, physical, professional and financial well-being of our employees and their families. Through our

Employee Assistance Program (“EAP”), offered at no cost to employees and family members, we provide resources

such as counseling, well-being coaching, financial guidance, identity theft resolution and support for emotional and

psychological safety. We believe these services help employees manage stress, build resilience, and achieve

personal and professional goals. Our holistic approach to wellness also includes tools and guidance for

incorporating wellness habits into daily life, ensuring our employees have the support they need to thrive.

TALENT MANAGEMENT

The attraction, retention and development of our employees is critical to our success. We strive to create a positive

employee experience that begins at onboarding. Our Human Resources Talent Management Team hosts online

Global New Employee Orientation for employees and each business conducts onsite new hire integration training

unique to its business and/or facility. This experience continues through our continuous learning, development and

performance management programs. We provide continuing education courses that are relevant to our industry and

job functions within the Company, including both instructor-led and online training through our Learning

Management System (“LMS”) MyLearning platform. Across the enterprise in 2025, employees completed nearly

830,000 learning activities through our platform.

In addition, we have created learning paths for specific positions that are designed to encourage an employee’s

advancement and growth within our organization, such as our REACH (Recruit, Engage, Align College Hires)

program and Global Manufacturing Training Initiative programs. Through REACH we recruit and develop early-

career engineers and safety professionals for our U.S. mills, preparing them to become future leaders. We invest in

the growth and development of our employees by providing a multi-dimensional approach to learning that

empowers, intellectually grows and professionally develops our employees. Our Global Manufacturing Training

Initiative provides training services to hourly operations and maintenance employees in our mills in a standardized

and structured manner. On the converting side of our business, nearly 100 front line and future leaders participated

in our multi-day in-person Leadership Application and Professional Development and Manufacturing Management

Associate Programs during 2025.

We develop leaders through a broad range of LMS virtual and in-person resources, courses and workshops for

individual contributors, people leaders and teams. In 2025, 44 senior leaders participated in the first offering of a

multi-part workshop series developed in partnership with The Aspen Institute. The program focused on cultivating

purpose-driven leadership, trust and collaboration, and equipping participants with the mindset and skills to navigate

complexity and drive meaningful impact.

We support employees in pursuing and preparing for future positions at the Company in several ways. We provide

tuition reimbursement and student loan assistance to help employees repay qualified student loans. We also offer

peer mentoring and leadership and career develo

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